Hartford Shares Down 8 Percent

Investors React To Poor Outlook For Earnings

Insurance

May 02, 2009|By DIANE LEVICK, dlevick@courant.com

The Hartford's shares fell 8 percent Friday on news of a large loss in the first quarter and lower earnings forecast for the year, though executives stressed that the financial cushion of the troubled life operations didn't deteriorate much in the period.

The Hartford Financial Services Group Inc. reported a $1.2 billion net loss after the market closed Thursday, and its operating loss, which excludes investment losses, was larger than analysts expected.

The stock closed at $10.56, down 91 cents a share in heavy trading.

Although the company says it's still well-capitalized, concern about its capital outlook and financial ratings has been one of the forces depressing its stock price in recent months.

On Friday, Chief Financial Officer Lizabeth H. Zlatkus told analysts that the risk-based capital ratio - one measure regulators use to evaluate financial health - was an estimated 420 percent to 430 percent as of March 31 for the life operations. A level of 325 percent or higher was historically associated with AA ratings, though The Hartford's subsidiaries are currently in the single A range.

The statutory surplus for the company - a financial cushion computed under states' accounting rules - was $13.7 billion at the end of the first quarter, compared with $13.8 billion at the end of 2008, according to a quarterly filing with the Securities and Exchange Commission.

The $1.2 billion net loss for the quarter reflects a charge of $1.5 billion that doesn't affect statutory surplus. The charge reflects revised estimates for future gross profits in the life business - the result of declines in stock markets that have hurt the company's large variable annuity business.

The Hartford has a major annuity business in Japan, where the company had a first-quarter operating loss of $430 million. Suspending sales in Japan and the United Kingdom was among the steps announced by the company Thursday to preserve and redeploy capital.

The company is also expected to lay off hundreds more employees. Although CEO Ramani Ayer didn't disclose numbers Friday, he told analysts on a conference call that the company is also eliminating vacant positions and has a hiring freeze in many business lines.

Despite lower earnings in property-casualty insurance, Ayer said the business continues to "demonstrate very good earnings power." He said intense price competition will likely last through the end of the year in the cyclical industry but added, "I think we are close to a real turn in the pricing environment in commercial insurance," especially in the market for mid-sized employers.